Dispute Settlement and Understanding Programme • Volume 11 • Number 26 • 18th July 2007

Brazil Launches WTO Case Against US Farm Subsidies


Brazil has launched a WTO case against the legality of a broad range of US farm support programmes.

The request for consultations, dated 11 July, is the first step in WTO dispute settlement procedures. Closely mirroring a complaint made by Canada earlier this year, it comes at a time when hopes for a Doha Round agreement - and with it new caps on agriculture subsidies - are diminishing.

The Brazilian government alleges that since 1999, the US has often exceeded its WTO spending limits for heavily trade-distorting agriculture subsidies to support commodities including wheat, corn, sorghum, cotton, rice, and livestock. It is also targeting some tax breaks and export credit guarantees, arguing that they are tantamount to prohibited subsidies.

The case follows Brazil’s own successful WTO suit against US support for cotton growers in 2005. If the two sides cannot resolve their differences within 60 days, Brazil will be free to seek the creation of a panel to adjudicate the dispute.

Specifically, Brazil claims that Washington surpassed its $19.1 billion entitlement for such ‘amber box’ spending in 2000, 2001, 2002, 2004, and 2005, as well as the prior $19.8 billion ceiling in 1999. With the exception of 2002, these are the same years targeted by Canada.

The document setting out the complaint highlights the US’ failure to notify the WTO of its subsidy expenditures since 2001 - before spending under the lavish 2002 farm bill came into effect - making its compliance difficult to assess. Nevertheless, "available public information indicates that the domestic support that the US provided… exceeded its commitment levels" in 2002, 2004, and 2005, thus violating multilateral trade rules. The public information Brazil refers to comes primarily from US government sources.

As for the years from 1999 to 2001, Brazil argued that the US had improperly notified amounts within its spending limits, by excluding payments under a range of programmes — including ‘production flexibility contract’ payments, market loss assistance payments, and various disaster relief schemes. In Brazil’s view, these payments should have been classified as amber box support; taking them into account would have put the US over the limit.

US officials dismissed Brazil’s claims, as they had done with Canada’s, arguing that subsidies remained within legal limits. Gretchen Hamel, a spokesperson for the US trade representative’s office told Bloomberg that the "claims were unfounded when they were made by Canada, and they are just as unfounded when they are made by Brazil.”

Hamel also said she was "puzzled" by the Brazilian government’s decision to target an export credit guarantee programme, saying that Washington had already modified the scheme in question in response to the cotton ruling. The US’ compliance with that decision - disputed by Brazil - is currently being examined by a separate panel.

Brazil emphasised that the systemic significance of the matter justified pursuing a case of its own, even though it had previously signed onto Canada’s request for consultations.

A press release from the Brazilian foreign ministry said that "mere participation as a third party in the dispute recently brought by Canada on the same subject would not offer an opportunity commensurate with Brazil’s needs." As a third party, Brazil would have been able to make presentations to the dispute panel, but would not have been eligible to take any retaliatory action.

Canada has openly acknowledged that its case aims to pressure Washington to cut trade-distorting farm subsidies, both as part of the Doha Round negotiations and as Congress writes the new farm bill mapping out future agricultural spending. Ottawa requested consultations with the US in January, and in June sought the creation of a panel to rule on the dispute after the disagreement could not be resolved (see BRIDGES Weekly, 13 June 2007). The US blocked this request, but is unable to do so a second time. The Canadian and Brazilian cases are so similar that one source said that panels in the two cases could conceivably be fused.

Notably, Brazil’s request did not mention the issue of whether US farm subsidies were distorting world prices to the detriment of producers elsewhere. Trade-distorting subsidies with such adverse effects are not permitted under the WTO Agreement on Subsidies and Countervailing Measures. In its initial request for consultations, Canada had argued that US corn subsidies were causing such "serious prejudice," undercutting Canadian farmers and pushing down world prices. However, it refrained from asking the dispute panel to investigate the issue.

If the WTO talks collapse completely, a series of disputes may follow, as countries seek to win through litigation at least part of what they could not achieve at the negotiating table. Many of these could deal with agricultural subsidies that cause "serious prejudice" to farmers elsewhere.

Development campaign group Oxfam has identified several US and EU farm subsidy programmes that would be vulnerable to WTO challenge, either for adversely affecting farmers in developing countries or illegally encouraging the use of domestic inputs in processed goods. US subsidies to corn, rice, and sorghum were pushing down global prices for the commodities, Oxfam said in a November 2005 paper, affecting farmers in developing countries as diverse as Argentina, Haiti, Ghana, Guyana, Kenya, South Africa, and Zambia. However, current high commodity prices for corn in particular - and the resulting drop in subsidy disbursements - may make "serious prejudice" hard to establish.

The same report contended that Brussels’ largesse to tomatoes, peaches, and citrus fruits was denying commercial opportunities in the EU or elsewhere to producers in countries including Brazil, Chile, and China.

However, some trade analysts warn that a spate of controversial new dispute ruling would put a serious strain on the WTO system, and could boost support in the US Congress for pulling out of the multilateral institution altogether.

ICTSD reporting; "Brazil Files Broadest Attack on U.S. Farm Aid at WTO," BLOOMBERG, 12 June 2007.